Daily market update: Markets jump and oil falls on Iran peace deal, Boots

Markets have finally got the news they’ve longed for since the beginning of March as the end of the Iran war is more clearly in sight.

The framework deal is a major step forward to ending the conflict, although it is still not officially signed and remains light on detail. Markets seem cautiously optimistic there won’t be any setbacks to getting it over the line, albeit investors are aware the narrative can change at the click of a finger. A full celebration is off the cards until the ink is dry on the deal.

Asian and European markets enjoyed a bounce on the news, but the scale of the advance wasn’t as huge as one might have expected. That’s partially down to markets having already bounced back in recent weeks, but it is also because inflation fears won’t suddenly disappear. It could take weeks or months to get the Strait of Hormuz fully back into action and even longer to get oil production back up to speed in the Middle East because of the damage to infrastructure. Oil may not be flowing as freely as it did before until at least 2027.

That risk is clear to see in the markets. Brent crude oil traded around $70 a barrel before the Iran war began. Today it trades at $83 a barrel, which effectively prices in some level of ongoing disruption to supplies in the near term.

While oil might be staying relatively higher for longer, it did pull back 5% on Trump’s announcement of a peace deal which in turn weighed on shares in Shell and BP. They fell 4% apiece and acted as an anchor on the FTSE 100. The UK index lagged its European peers, only rising 0.6% compared to the 1.6% to 1.8% range enjoyed in Germany, France and Spain. 

The Middle East news saw investors scramble to readjust their portfolios. Out went oil, defence and telecoms stocks, and in came higher risk and more economically sensitive parts of the market. Investors lapped up mining companies, housebuilders, packaging providers, tech names, and banks. Airlines soared including a near-8% rise in Wizz Air on the prospect of costs coming down and fuel shortage fears fading away.

A falling oil price is good for business and consumer sentiment. The peace agreement also has major implications for the direction of interest rates. Just last week, markets were pricing in two rate hikes by early 2027. The probabilities have now shifted to just one rate hike by December and then potentially no change for at least the first half of 2027. That could mean companies having greater confidence to hire more people, consumers being more willing to spend money, and allow the property market to warm up after having gone cold for sellers in recent months.

Boots 

The chances of retail group Boots making a stock market return after nearly two decades have increased after Australia’s Sigma Healthcare walked away from a potential takeover.

Investors down under seemed to view this as a bullet dodged judging by the share price reaction. This may reflect concern about the risks associated with any big international takeover rather than a reflection of Boots’ own merits as a business. 

Whether Boots’ private equity owner Sycamore can flush out further bid interest will determine the next steps with Canada’s Weston family, the biggest shareholders in Associated British Foods, having also reportedly held talks over acquiring the chemist chain.  

A Boots IPO would be a much-needed boost for the London market. There have been several high-profile departures thanks to takeovers or a change in listing venue in recent years and this has been compounded by a distinct lack of fresh blood coming in. Boots is a fixture of the UK retail industry and the appointment of Currys boss Alex Baldock as CEO may create some investor buzz if the company does pursue a listing given his successful track record.